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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is made to be effective
September 5, 1997 (the "Effective Date"), among NEW FRONTIER MEDIA, INC., a
Colorado corporation, COLORADO SATELLITE BROADCASTING, INC. ("Buyer"), a wholly
owned subsidiary of New Frontier Media, Inc., and 1043133 ONTARIO INC., an
Ontario corporation ("Seller"). New Frontier Media, Inc. and Buyer are
collectively referred to in this Agreement as "Buyers."
This Agreement sets forth the terms and conditions upon which Buyers agree
to purchase from Seller, and Seller agrees to sell to Buyers, certain properties
and assets of Seller ("Subject Assets") relating to the "Adult Movies Business"
of Seller.
NOW THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, the parties agree as
follows:
DEFINITIONS
"124 Agreement" means the asset purchase agreement made on the same date as this
Agreement among the Buyers, and 1248663 Ontario Inc. and Merlin Sierra, Inc.,
wherein the Buyers agreed to purchase certain satellite uplinking and playback
equipment and certain call center equipment and related assets from 1248663
Ontario Inc. and Merlin Sierra, Inc.
"5DBC Agreement" means the asset purchase agreement made on the same date as
this Agreement among the Buyers and Fifth Dimension Communications (Barbados)
Inc.
"Adult Movies Business" means any and all present or contemplated satellite
broadcast services on television or any other medium, including cable television
and the Internet, which broadcasts, replays, and/or otherwise exploits feature
length adult programming and all related promotional content and other
programming of a non-rated or X-rated nature and whose main theme embodies
nudity and/or sexually explicit material between consenting adults and such
other related business assets as are necessary for the operation thereof.
"adverse or adversely", when used alone or in conjunction with other terms
(including without limitation "affect," "change" and "effect"), means any event
discovered by either party after the date hereof which is reasonably likely in
the respective business judgment of either Buyers or Seller, as the case may be,
to be expected to (a) adversely affect the validity or enforceability of this
Agreement, or (b) adversely affect the business, operation, management or
properties of Seller or Buyers, or (c) impair Seller or Buyers, or (d) adversely
affect the respective aggregate rights and remedies of either party under this
Agreement. Notwithstanding the foregoing no event affecting the adult movie
industry generally shall be deemed to constitute an adverse change, have an
adverse effect or to adversely affect or effect.
"Agreement" means this Agreement as originally in effect, including unless the
context otherwise
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specifically requires, all schedules and all exhibits hereto, and as any of
the same may from time to time be supplemented, amended, modified or restated
in the manner herein or therein provided.
"Applicable Law" shall mean any Law of any Authority, whether domestic or
foreign, including without limitation all federal and state securities and
environmental laws, to which a person or entity is subject or by which it or any
of its business or operations is subject or any of its property or assets is
bound.
"Authority" means any governmental or quasi-governmental authority, whether
administrative, executive, judicial, legislative or other, or any combination
thereof, including without limitation, any federal, provincial, state,
territorial, county, municipal or other government or governmental or
quasi-governmental agency, arbitrator, authority, board, body, branch,
bureau, central bank or comparable agency, or Entity, commission,
corporation, court, department, instrumentality, master, mediator, panel,
referee, system, or other political unit or subdivision or other Entity of
any of the foregoing whether domestic or foreign.
"Buyers' Disclosure Schedule" means the schedule attached as SCHEDULE 8.2(a).
"Closing" means the closing of the transactions contemplated herein and
"Closing Date" means the date on which the closing takes place.
"Collateral Agreements" means agreements and other documents executed or
required to be executed pursuant to the terms of this Agreement.
"Entity" means any corporation, firm, unincorporated organization,
association, partnership, limited liability company, trust (inter vivos or
testamentary), estate of a deceased, individual, business trust, joint stock
company, joint venture or other organization, entity or business, whether
acting in an individual, fiduciary or other capacity, or any Authority.
"Governmental Authorizations" means all approvals, concessions, consents,
franchises, licenses, permits, and other authorizations of all applicable
Authorities.
"material, materially or materiality", unless specifically stated otherwise,
shall be determined without regard to the fact that various provisions of
this Agreement set forth specific dollar amounts.
"New Frontier" means New Frontier Media, Inc.
"Ottawa Call Center" means the subscription and pay-per-view call center at
Ottawa, Ontario now operated by Seller.
"Private Authorizations" means all approvals, concessions, consents,
franchises, licenses, permits, and other authorizations of all persons (other
that Authorities) including without limitation those with respect to
copyrights, computer software programs, patents, service marks, trademarks,
trade names, technology and know-how.
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"Subject Assets" means:
(a) any and all trademarks, proprietary rights and other intellectual
property rights owned by Seller and associated with its Adult
Movies Business. These include but are not necessarily limited to
the trade names, trademarks and/or service marks listed
on SCHEDULE 1(a), "Trademarks List," and any goodwill associated
with such trade names, trademarks and/or service marks;
(b) all subscriptions for its Adult Movies Business as of the
Date of Closing, including all subscriber lists, past and present,
and any other marketing data related thereto, in the possession of
Seller, as described in SCHEDULE 1(b), "Subscribers List" (and it
is understood that the subscriber lists shall be delivered on
disk(s) in electronic form only because of the length of such
lists);
(c) a complete list of all advertisers, marketing partners and
vendors used by Seller in relations to its Adult Movies Business
and related services, with contact names, mailing addresses, and
phone and fax numbers; as set forth in SCHEDULE 1(c) "Vendors List";
(d) all rights, title and interest Seller may have in 1-800 phone
numbers used for its Adult Movies Business and related services and
in any World Wide Web address and websites used in its Adult Movies
Business;
(e) upon request of Buyers, Seller shall provide copies of all
papers, computerized databases, and records in Seller's custody or
control relating to any or all of the above described assets and
the operation of Seller's Adult Movies Business, including but not
limited to all sales and subscription records, maintenance and
production records, but excluding accounting and financial records
and personnel and labor relations records;
(f) all rights, title and interests in any permits, licenses,
franchises, consents or authorizations issued by, and all
registrations and filings with, any government agency solely in
connection with Adult Movies Business of Seller, whenever issued or
filed, (including but not limited to any permits or licenses from
the Canadian Radio-Television and Telecommunications Commission and
any permits or licenses from the Federal Communications Commission)
excepting only those which by law are non-transferable or those
which have expired;
(g) all other assets to be transferred from Seller to Buyer under
SECTION 1 of this Agreement; and
(h) any tort or insurance proceeds arising out of any damages
or destruction or any of the Subject Assets between the date of
this Agreement and the Closing Date to the extent required to
repair or replace any Subject Asset.
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"Transactions" means the transactions contemplated by this Agreement and all
Collateral Agreements.
"Uplink Facility" means the current facility located at 2500 Don Reid Drive,
Ottawa, Ontario and now used by Seller for uplink, playback and broadcast
programming of its Adult Movies Business.
ARTICLE 1. TRANSFER OF ASSETS
Subject to the terms and conditions set forth in this Agreement, Seller agrees
to sell, convey, transfer, assign and deliver to Buyer, and Buyers agrees to
purchase from Seller at the Closing described in ARTICLE 3, all of the Subject
Assets, whether tangible, intangible, real, personal or mixed, and wherever
located, including those assets set forth in the lists of SCHEDULES 1(a) through
(c) and as further described in this ARTICLE 1.
1.1 SOFTWARE. Pursuant to SCHEDULE 1.1, the First Link License Agreement,
Seller shall provide to Buyers a non-exclusive royalty free license to use one
networkable copy of version 2.0 or any updated version of "First Link"
subscription management software. The rights granted to Buyers shall not be
assigned, licensed or otherwise transferred voluntarily or by operation of law,
or otherwise, except pursuant to the purchase of substantially all of the
outstanding capital stock or assets of Buyers, without the written consent of
Seller. Buyers acknowledge that, prior to Closing, Seller may acquire
additional software for use in connection with its Adult Movies Business and
Buyers agree on Closing to pay 50% of the actual costs thereof (to a maximum of
US$32,608.69).
1.2 INVESTMENT CANADA ACT. The parties agree that the Transactions do not
require notice, review, approval or allowance under the INVESTMENT CANADA ACT
and it is not a condition precedent to the Closing of the Transactions that any
notice be given or approval, allowance or consent be obtained in respect
thereof. Notwithstanding anything to the contrary in this Agreement, no
representation, warranty or covenant given by any party under or pursuant to
this Agreement is intended or shall be deemed to include a representation,
warranty or covenant related to the INVESTMENT CANADA ACT.
ARTICLE 2. PURCHASE PRICE
2.1 PAYMENT OF PURCHASE PRICE. In consideration for the transfer and assignment
of the Subject Assets and in consideration of the representations, warranties
and covenants of Seller set forth herein, Buyers on the conditions set forth
herein:
(a) shall pay, subject to ARTICLE 5, an earnest money deposit in the
amount of US$5,000.00;
(b) shall deliver to Seller at the Closing (as hereinafter defined)
US$500,000.00 plus
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taxes as provided in ARTICLE 6, payable in cash as more
fully described in SECTION 3.2;
(c) shall assume and discharge, and shall indemnify Seller against,
liabilities and obligations of Seller under the leases, contracts
or other agreements, if any, specified on SCHEDULE 4 but only to
the extent that such liabilities or obligations accrue on or after
the Closing Date.
2.2 ALLOCATION OF THE PURCHASE PRICE. The parties agree that the Purchase
Price (defined as the sum of the amounts specified in SECTION 2.1(b) shall be
allocated as set forth in SCHEDULE 2.2 and that such allocation will be used
by the parties in reporting the transaction contemplated by this Agreement
for tax purposes.
2.3 ELECTIONS. Seller and Buyers will on or before the Closing Date jointly
execute an election, in prescribed form and containing the prescribed
information, to have subsection 167(1.1) of the EXCISE TAX ACT (Canada) apply
to the sale and purchase of the Subject Assets hereunder so that no tax is
payable in respect of such sale and purchase under Part IX of the EXCISE TAX
ACT (Canada). The Buyers will file such election with the Minister of
National Revenue within the time prescribed by the Excise Tax Act (Canada).
ARTICLE 3. THE CLOSING
The closing of the purchase and sale of the Subject Assets by Seller to
Buyers (the "Closing") shall take place at 2500 Don Reid Drive, Ottawa,
Ontario, sixty-four (64) days after the date of this Agreement or at such
other place and/or time as the parties may agree in writing (the "Closing
Date"). In the event that the conditions specified in this Agreement have
not been fulfilled by such date, either Seller or Buyers may extend the
Closing Date for a period or periods not exceeding an aggregate of thirty
(30) days by written notice to the other parties.
3.1. SELLER'S OBLIGATIONS AT CLOSING.
(a) At the Closing Seller shall deliver or cause to be delivered
to Buyer:
(i) assignment and assumption agreements for personal property
leases, all contracts and agreements of Seller to be
assumed in connection herewith, in form and substance
reasonably satisfactory to Buyers' counsel, and accompanied
by all consents required by this Agreement and the personal
property leases, contracts and agreements being assigned;
(ii) instruments of assignment and transfer (including a bill
of sale) of all the Subject Assets in form and substance
reasonably satisfactory to Buyers' counsel; and
(iii) such other documents as shall be reasonably requested by
Buyers or
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Buyers' counsel (for example, a BULK SALES ACT affidavit).
(b) Simultaneously, with the consummation of the transfer, Seller, through
its officers, agents and employees, shall put Buyer into full
possession and enjoyment of all the Subject Assets to be sold,
conveyed, transferred, assigned and delivered by this Agreement.
(c) Seller, at any time before or after the Closing Date shall
execute, acknowledge, and deliver any further deeds, assignments,
conveyances and other assurances, documents and instruments of
transfer, reasonably requested by Buyers and shall take any other
action consistent with the terms of this Agreement that may be
reasonably requested by Buyers for the purpose of assigning,
transferring, granting, conveying and confirming to Buyers, or
reducing to possession, any or all property and assets to be
conveyed or transferred by this Agreement. If requested by Buyers,
Seller further agrees to prosecute or otherwise enforce in their
own names for the benefit of Buyers any claims, rights, or benefits
that are transferred to Buyers by this Agreement and that require
prosecution or enforcement in Seller's name. Any prosecution or
enforcement of claims, rights, or benefits under this Section shall
be solely at Buyer's expense, unless the prosecution or enforcement
is made necessary by a breach of this Agreement by Seller.
3.2. BUYER'S OBLIGATIONS AT CLOSING. At the Closing Buyers shall deliver to
Seller against delivery of the items specified in SECTION 2.1, a certified bank
or cashier's check, or a wire transfer of immediately available funds, in the
amount of US$500,000.00 plus taxes pursuant to ARTICLE 6 payable to Seller.
Seller shall notify Buyers within five (5) days of the Closing Date whether the
amount payable at Closing shall be delivered by certified bank or cashier's
check, or by wire transfer. At closing, Buyers shall deliver to Seller such
documents that shall be reasonably requested by Seller or Seller's counsel.
ARTICLE 4. ASSUMPTION OF LIABILITIES
Buyers are not assuming any debt, liability or obligation of Seller, whether
known or unknown, fixed or contingent, except as herein specifically otherwise
provided. Seller agrees to indemnify and hold Buyers harmless against all
debts, claims, liabilities and obligations of Seller not expressly assumed by
Buyers hereunder, and to pay any and all attorneys' fees and legal costs
incurred by Buyers, its successors and assigns in connection therewith. Buyers
shall have the benefit of and shall perform and assume all leases, contracts and
agreements, if any, specifically listed on SCHEDULE 4, in accordance with the
terms and conditions thereof, except to the extent modifications are
specifically set forth in SCHEDULE 4 and except to the extent set forth in the
assignments or assignment and assumption agreements for such leases, contract
and agreements.
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ARTICLE 5. RETURN OF DEPOSIT
Upon execution of this Agreement, Buyers shall pay to Seller an earnest money
deposit of US$1,250.00. Upon parties' final acceptance of the form and
content of the schedules to this Agreement, Buyers shall pay to Seller a
further earnest money deposit of US$3,750.00. Such deposits shall be
returned to Buyers if the Transactions are not closed due to: (a) the failure
of any conditions set forth in ARTICLE 11 to be met at or before the Closing
as a result of any act or omission by Seller; or (b) the occurrence of any
default by Seller described in SECTION 17.3. If the Transactions are not
closed for any other reason, the deposit shall be retained by Seller. Upon
Closing, the deposit shall be applied towards the payment due to Seller under
SECTION 2.1(b).
ARTICLE 6. TAXES
Buyers shall pay all sales, use and transfer taxes arising out of the transfer
of the Subject Assets, including any foreign transfer taxes and shall pay its
portion, prorated as of the Closing Date, of state, provincial, and local real
and personal property taxes of the business being sold hereunder. Buyers shall
not be responsible for any business, occupation, withholding or similar tax, or
for any income, sales, use, value-added or similar taxes related to any period,
or transaction occurring during any period, before the Closing Date.
ARTICLE 7. REPRESENTATIONS AND WARRANTIES OF SELLERS
Seller hereby represents and warrants to Buyers that the following facts and
circumstances are and will be at all times up to the Closing Date, except as
contemplated hereby, true and correct, and hereby acknowledge that such facts
and circumstances constitute the basis upon which Buyers are induced to enter
into and perform this Agreement. Each warranty set forth in this ARTICLE 7
shall survive eighteen (18) months past the Closing Date and any investigation
made by or on behalf of Buyers. Buyers shall conduct their own due diligence
investigation and that investigation shall include an investigation into whether
Seller is or has operated in accordance with the warranties and representations
of Seller. If prior to the closing date, Buyers believe they have discovered
any breach of the representations and warranties of Seller, they shall forthwith
advise Seller in writing of such breach. If Seller does not or cannot cure such
breach prior to the Closing Date, Buyers may elect to close (in which case the
breach shall be deemed non-material) or not close provided such breach is
material. If Buyers fail to give such notice then the breach will be deemed
non-material.
7.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Seller is a corporation
organized, validly existing, and in good standing under the laws of Ontario.
Seller has all necessary corporate powers to own its properties and to carry on
its business as now owned and operated by it, and is duly qualified to transact
any business and is in good standing in all jurisdictions in which the nature of
its business or its properties makes such qualification necessary.
7.2 FINANCIAL STATEMENTS. SCHEDULE 7.2(a) is the Combined Financial Statements
for the years
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ending March 31, 1997 and 1996 for Fifth Dimension Communications (Barbados)
Inc., Merlin Sierra, Inc. and Seller, certified by Ernst & Young, chartered
accountants, whose opinions with respect to such financial statements are
included into this Agreement. SCHEDULE 7.2(b) sets forth unaudited combined
balance sheets of Seller and others as of June 30, 1997 (the "Stub Period
Date"), together with related unaudited combined statements of changes in
financial positions and unaudited combined statements of income and retained
earnings for the three (3) month period then ending, as prepared in part by
Seller. These financial statements in SCHEDULES 7.2(a) and (b) are referred
to as the "Financial Statements." The Financial Statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
consistently followed by Seller throughout the periods indicated, are
complete and correct in all material respects and accurately and fairly
depict the present financial position of Seller as of the respective dates of
the balance sheets included in the Financial Statements, and the results of
their operations for the respective periods indicated. Seller has no
liabilities or obligations of any nature (known or unknown, absolute,
accrued, contingent or otherwise) of the type required to be reflected or
disclosed in a balance sheet (or notes thereto) prepared in accordance with
GAAP that were not fully reflected or reserved against in the Financial
Statements. The Audited Financial Statements being provided by Seller shall
contain in footnotes or otherwise information concerning adjustments and
add-back payments as reflected on page 7 of the Letter of Understanding dated
April 14, 1997 from New Frontier, which is attached as SCHEDULE 7.2(c). The
Financial Statements accurately reflect the revenues and expenses of Sellers'
Adult Movies Business.
7.3 ABSENCE OF SPECIFIED CHANGES. Since March 31, 1997, there has not been any:
(a) adverse material changes in the financial condition, liabilities,
assets, business, operating results or prospects of Seller with
respect to its Adult Movies Business;
(b) destruction, damage to, or loss of any of the Subject Assets (whether
or not covered by insurance) that materially and adversely effects the
assets, financial condition, business, assets or prospects of Seller
with respect to its Adult Movies Business;
(c) labor trouble or other event or condition of any character materially
and adversely effecting the financial condition, business, assets or
prospects of Seller;
(d) revaluation by Seller of any of the Subject Assets in a manner that
would be materially adverse to Buyers;
(e) execution, creation, amendment, nonrenewal or termination of any
material contract, agreement or license to which Seller is a party,
except in the ordinary course of business or except as can be
terminated prior to the Closing Date without materially adversely
effecting the Subject Assets;
(f) creation or assumption by Seller of any mortgage, pledge,
security interest or lien or other encumbrance on any material
asset of Seller related to its Adult Movies Business, except as set
forth in SCHEDULE 7.3(f);
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(g) receipt by Seller of notice of any loss of, or material order
cancellation by, any major customers of Seller, except as set forth in
SCHEDULE 7.3(g);
(h) other event or condition of any character of which Seller has
knowledge that has or might reasonably have a material adverse effect
on the financial condition, business, assets, operating results or
prospects of its Adult Movies Business, except as set forth in
SCHEDULE 7.3(h); or
(i) agreement by Seller to do any of the things described in the preceding
clauses (a) through (h).
7.4 SUBJECT ASSETS SUFFICIENT FOR OPERATIONS. The Subject Assets, together with
the "Subject Assets" described in the 124 Agreement and in the 5DBC Agreement,
constitute all assets (except premises) which are necessary for the continued
uninterrupted operation by Seller of its Adult Movies Business as now conducted.
Except as stated in SCHEDULE 4, none of the Subject Assets are held under any
lease, security agreement, conditional sales, contract, or other title of
retention or security agreement, or are in the possession of anyone other than
Seller.
7.5 TRADE NAMES, TRADEMARKS AND COPYRIGHTS. Except as set forth IN SCHEDULE
7.5, Seller does not use or own any trademark, service mark, trade name, trade
secret, or brand name in its Adult Movies Business. To the actual knowledge of
Seller, no person has made any outstanding claims against Seller in respect of
any trademark, trademark registration or application, service mark, trade name,
copyright, copyright registration or application or brand name, the use of which
is necessary or contemplated in connection with the performance of any contract
to which Seller is a party.
7.6 TRADE SECRETS. Seller is not aware of any trade secrets owned by, used in
or necessary for the operation of its Adult Movies Business.
7.7 TITLE TO ASSETS. To the best of Seller's knowledge, Seller has good and
marketable title to all the Subject Assets free and clear of mortgages, liens,
pledges, charges, encumbrances, equities, claims, easements, rights of way,
covenants, conditions, or restrictions, except for (i) those disclosed in
Seller's balance sheet as of the Stub Period Date, included in the Financial
Statements, or in the Schedules to this Agreement; (ii) the lien of current
taxes not yet due and payable; and (iii) possible minor matters that, in the
aggregate, are not substantial in amount and do not materially detract from or
interfere with the present or intended use of any of these assets, nor
materially impair the operations of its Adult Movies Business. All the Subject
Assets are in good operating condition and repair, ordinary wear and tear
excepted. Seller is in possession of all premises leased to it from others and
used by it in connection with its Adult Movies Business.
7.8 CUSTOMERS AND SALES. SCHEDULE 7.8 to this Agreement is a correct and
current list of all customers/subscribers of Seller together with summaries of
the sales made to each customer during the most recent fiscal year. Except as
indicated in SCHEDULE 7.8, Seller has no information and is not aware of any
facts indicating that any dealers or distributors of the services offered by
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its Adult Movies Business intend to cease doing business with Seller or alter
the amount of the business that they are presently doing with Seller where
such cessation or alteration would have a material adverse effect on its
Adult Movies Business.
7.9 INSURANCE POLICIES. SCHEDULE 7.9 to this Agreement is a description of all
insurance policies held by Seller concerning the Subject Assets. All these
policies are in the respective principal amounts set forth in SCHEDULE 7.9.
Seller has maintained and now maintains (a) insurance on all the Subject Assets
of a type customarily insured, covering property damage by fire or other
casualty, and (b) adequate insurance protection against all liabilities, claims,
and risks against which it is customary to insure. Such insurance coverage will
be cancelled as of Closing.
7.10 OTHER CONTRACTS. Copies of all contracts which will be assigned to or
assumed by Buyers under this Agreement are attached as part of SCHEDULE 4.
Except as set forth in SCHEDULE 4 and to the best of Seller's knowledge, the
Subject Assets will not at Closing or thereafter (as a result of actions or
conduct of Seller) be bound or potentially bound by, any distributor's or
manufacturer's representative or agency agreement, any output or requirements
agreement, any agreement not entered into in the ordinary course of business,
any indenture, mortgage, deed of trust, lease or any other agreement that is
unusual in nature, duration or amount (including, without limitation, any
agreement requiring the performance by Seller of any obligation for a period of
time extending beyond one year from Closing Date or calling for consideration of
more than US$ 10,000.00 or requiring purchases at prices in excess of, or sales
at prices lower than, prevailing market prices). To the best of Seller's
knowledge, there is no default or event that with notice or lapse of time, or
both, would constitute a default by any party to any of the agreements listed in
SCHEDULE 4 and such contracts remain in full force and effect. Seller has not
received notice that any party to any of the agreements listed in SCHEDULE 4
intends to cancel or terminate any of these agreements or to exercise or not
exercise any options under any of these agreements. Seller is not party to, nor
are Seller or the Subject Assets bound by, any agreement that is materially
adverse to the business, assets, property, operating results, prospects or
financial condition of Seller.
7.11 COMPLIANCE WITH LAWS. Seller has received no notice of any violation of
any statutes, laws or regulations (including, without limitation any applicable
obscenity, environmental, health, building, zoning, or other law, ordinance or
regulations) from any Authority the violation of which may materially adversely
affect its Adult Movies Business. Seller is not in violation of or default
under any provisions of its Articles of Incorporation or Bylaws, both as
amended. The execution, delivery and performance of the Agreement and the
consummation of the Transactions will not result in any such violation or
default, or be in conflict with or constitute, with or without the passage of
time or the giving of notice or both, a default under Seller's Articles of
Incorporation or Bylaws, both as amended. To the best of Seller's actual
knowledge, all licenses, permits, approvals, registrations, qualifications,
certificates and other authorizations necessary for the conduct of Seller's
Adult Movies Business as presently conducted (the "Licenses") have been duly
obtained, are in full force and effect, and there are no proceedings pending or
threatened which may result in the revocation, cancellation, suspension or
modification of any of such Licenses.
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7.12 LITIGATION. Except as set forth in SCHEDULE 7.12, there is no suit,
action, arbitration or legal, administrative or other proceeding, or
governmental investigation ("Actions") pending or, to the best knowledge of
Seller, threatened, against or affecting Seller, or any of its business,
assets or financial condition, or against any officer, director or employee
of Seller in connection with such officer's, director's or employee's
relationship with or actions taken on behalf of Seller. Seller is not party
to or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality, and there are no
actions or claims by Seller currently pending or, to which Seller intends to
initiate. To the best knowledge of Seller, there has not occurred any event
nor does there exist any condition on the basis of which any litigation,
proceeding or investigation is likely to be instituted by or against Seller.
The matters set forth in SCHEDULE 7.12 if decided adversely to Seller will
not result in a material adverse change in the business, assets, operating
results, prospects or financial condition of Seller. Seller has furnished or
made available to Buyers copies of all relevant court papers and other
documents relating to the matters set forth in SCHEDULE 7.12. Seller is not
in default with respect to any order, writ, injunction or decree of any
federal, state, local or foreign court, department, agency or
instrumentality. Except as set forth in SCHEDULE 7.12, Seller is not
presently engaged in any legal action to recover moneys due to it or damages
sustained by it.
7.13 AGREEMENT WILL NOT CAUSE BREACH OR VIOLATION. Neither the entry into
this Agreement nor the consummation of the transactions contemplated hereby
will result in or constitute any of the following events where the occurrence
of such event would render Seller materially unable to comply with this
Agreement: (a) a default or an event that, with notice or lapse of time or
both, would be a default, breach or violation of any lease, license,
promissory note, conditional sales contract, commitment, indenture, mortgage,
deed of trust or other agreement, instrument or arrangement; (b) an event
that would permit any party to terminate any agreement or to accelerate the
maturity of any indebtedness or other obligation; (c) the creation or
imposition of any lien, charge or encumbrance on any of the Subject Assets;
or (d) the violation of any law, regulation, ordinance, judgment, order or
decree.
7.14 AUTHORITY AND CONSENTS. Except as set forth in SCHEDULE 7.14, Seller
has the right, power, legal capacity and authority to enter into, and perform
its obligations under this Agreement, and no approvals or consents of any
persons other than the shareholders of Seller are necessary in connection
with it. The execution and delivery of this Agreement and the consummation
of this transaction by Seller have been, or prior to the Closing will have
been, duly authorized by all necessary corporate action of Seller (including
any necessary action by Seller's security holders). This Agreement
constitutes a legal, valid and binding obligation of Seller enforceable in
accordance with its terms except as limited by bankruptcy and insolvency laws
and by other laws affecting the rights of creditors generally.
7.15 INTEREST IN CUSTOMERS, SUPPLIERS AND COMPETITORS. Except as set forth
in SCHEDULE 7.15 or as contemplated by a Collateral Agreement, neither Seller
nor any officer or director or shareholder of Seller, nor any spouse or child
of any of them has any direct or indirect interest in any competitor,
supplier or customer of Seller or in any person with whom Seller is doing
business.
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7.16 INFORMATION FURNISHED TO BUYER FOR BULK TRANSFER NOTICE. For the
purposes of furnishing notices under the BULK SALES ACT (Ontario), SCHEDULE
7.16 is a true, complete and correct list of all names and business addresses
used by Seller.
7.17 DOCUMENTS DELIVERED. Each copy or original of any agreement, contract
or other instrument which is identified in any exhibit or schedule delivered
by Seller or its counsel to Buyers (or their counsel or representatives),
whether before or after the execution hereof, is in fact what it is purported
to be by Seller and has not been amended, canceled or otherwise modified.
7.18 FULL DISCLOSURE. None of the representations and warranties made by
Seller or made in any letter, certificate or memorandum furnished or to be
furnished by Seller or on its behalf, contains or will contain any untrue
statement of a material fact, or omits any material fact the omission of
which would make the statements made misleading and materially adverse to
Buyers. Except matters of general knowledge within the Adult Movies industry
and other matters generally available to the public, there is no fact known
to Seller which materially adversely affects the condition, assets,
liabilities, business, or operations of the Seller's Adult Movies Business
that has not been set forth herein or heretofore communicated to Buyer in
writing.
7.19 SUBJECT ASSETS ARE SUFFICIENT TO OPERATE BUSINESS.
(a) The Buyers are acquiring the ownership, possession or use under this
Agreement of all or substantially all of the property and assets
(excluding premises) that can reasonably be regarded as necessary
(when added to the "Subject Assets" described in the 124 Agreement
and the 5DBC Agreement) for Buyer to be capable of carrying on the
Adult Movies Business as conducted by Seller as a business within the
meaning of section 167 of the EXCISE TAX ACT (Canada).
(b) Seller is now, or will be at Closing, registered under Part IX of the
EXCISE TAX ACT (Canada).
7.20 SOLVENCY. As of the execution and delivery of this Agreement, and, after
giving effect to the consummation of the Transactions, Seller will be solvent.
7.21 TAX MATTERS. Seller shall continue to be responsible for and will
discharge all obligations and liabilities in respect to taxes pertaining to its
Adult Movies Business and the Subject Assets which arise or accrue for all
periods ending on or before the Closing Date (but excluding the taxes referred
to in ARTICLE 6). Seller will indemnify and hold harmless Buyers against any
and all claims and demands incurred by Buyers that directly or indirectly arise
out of such obligations or liabilities. Without limiting the foregoing, Seller
will be responsible for all federal, state, provincial, local, foreign and other
net income, gross income, gross receipts, alternative or add on minimum,
profits, sales, use, occupation, value-added, ad valorem, transfer, franchise,
license, lease, service use, withholding, payroll, employment, excise,
severance, premium, property, windfall profits, customs, duties, or other taxes,
fees assessments, or charges of any kind whatsoever, together with any interest,
penalties or additions to tax imposed with respect thereto, or any obligations
to any agreements or arrangements with respect to and taxes described above.
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7.22 EMPLOYMENT MATTERS. Buyer shall be under no obligation to offer
employment to any of Seller's employees employed in connection with its Adult
Movies Business ("affected employees"), except as otherwise stated in this
Agreement. Buyer may, however, choose to retain the services of or to offer
employment to one or more of the affected employees, should it wish to do so,
subject to SECTION 13.4.
Seller will continue to be responsible for and will discharge all obligations
and liabilities in respect of the affected employees which arise or accrue prior
to, on or after the Closing Date. Seller will indemnify and save harmless Buyers
against any and all claims and demands incurred by Buyers that directly or
indirectly pertain to or arise out of such obligations or liabilities. Without
limiting the forgoing, Seller will be responsible for and will bear and
discharge any and all obligations and liabilities for wages, severance pay,
termination pay, notice of termination of employment or pay in lieu of such
notice, damages for wrongful discharge or other employee benefits or claims,
including vacation pay, which may arise in connection with the employment or
dismissal of any of the affected employees, including any interest, award,
judgment or penalty relating thereto and any costs or expenses incurred by
Buyers in defending against any claim or demand relating to such obligation or
liabilities.
7.23 124 AGREEMENT.
(a) The equipment (including without limitation essential spares and
replacement parts) and software technology, furniture, machinery,
appliances, and other tangible personal property and technology as
specifically set forth in SCHEDULE 1(a) of the 124 Agreement is
substantially similar to the equipment and technology used in connection
with and historically allocated to the Adult Movies Business carried on
by the Seller as of July 31, 1997 at the Uplink Facility.
(b) The uplink facility to be operated, maintained, managed and sustained
under SECTION 1.1 of the 124 Agreement shall be of a substantially
similar nature and quality as those services currently being provided
by Seller to its present subscribers.
(c) The "Subject Assets" described in the 124 Agreement constitute all assets
(other than premises) necessary for the continued uninterrupted operation
by 1248663 Ontario Inc. of the call center and uplink facility as now
conducted on behalf of the Seller in respect of its Adult Movies
Business.
(d) SCHEDULE 1(b) of the 124 Agreement contains a complete list of the
hardware, equipment, furniture, machinery, appliances, software and
other tangible personal property now used at the Ottawa Call Center.
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ARTICLE 8. BUYERS' REPRESENTATIONS AND WARRANTIES
Buyers represents, warrants, and covenants to, and agrees with Seller as
follows:
8.1 ORGANIZATION AND BUSINESS: POWER AND AUTHORITY: EFFECT OF TRANSACTION.
(a) Each Buyer (i) is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation; (ii) has all requisite power and authority to own or
hold under lease its properties and to conduct its business as now
conducted and as presently proposed to be conducted, and has in
full force and effect all Governmental Authorizations and Private
Authorizations and has made all governmental filings, to the extent
required for such ownership and lease of its property and conduct
of its business and is in good standing in such jurisdictions in
which the failure to be in good standing would have a material
adverse effect upon its property or the nature of its business or
operations.
(b) Each Buyer has all requisite power and authority and has
in full force and effect all Governmental Authorizations and
Private Authorizations in order to enable it to execute and
deliver, and to perform its obligations under, this Agreement and
each Collateral Agreement executed or required to be executed
pursuant hereto or thereto or to consummate the Transactions and
the Collateral Agreements; and the execution, delivery and
performance of this Agreement and each Collateral Agreement has
been duly authorized by all requisite corporate or other action.
No further action or approval on the part of Buyers' stockholders
is required in connection with the execution, delivery and
performance of this Agreement or each Collateral Agreement or the
consummation of the Transactions. This Agreement has been duly
executed and delivered by each Buyer and constitutes, and each
Collateral Agreement executed or required to be executed pursuant
hereto or thereto or to consummate the Transactions when executed
and delivered by Buyers will constitute, legal, valid and binding
obligations of Buyers enforceable in accordance with their
respective terms.
(c) Neither the execution and delivery of this Agreement or
any Collateral Agreement, nor the consummation of the Transactions,
nor compliance with the terms, conditions and provisions hereof or
thereof by Buyers will conflict with, or result in a material
breach or violation of, or constitute a material default under, any
Applicable Law on the part of Buyers or will conflict with, or
result in a material breach or violation of, or constitute a
material default under, or permit the acceleration of any
obligation or liability in, or but for any requirement of giving
notice or passage of time or both would constitute such a conflict
with, material breach or violation of, or material default under,
or permit any such acceleration in, any contractual obligation of
Buyers.
8.2 GST REGISTRATION. Buyer will be registered under Part IX of the EXCISE TAX
ACT (Canada) at Closing.
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8.3 DISCLOSURE. None of the representations and warranties made by Buyers or
made in any letter, certificate or memorandum furnished or to be furnished by
Buyers or on their behalf, contains or will contain any untrue statement of a
material fact, or omits any material fact the omission of which would make the
statements made misleading and materially adverse to Seller.
8.4 CONTINUING REPRESENTATION AND WARRANTY. Except for those representations
and warranties which speak as of a specific date, all of the representations and
warranties of Buyers set forth in this Article shall be true and correct on the
Closing Date with the same force and effect as though made on and as of that
date and those, if any which speak as of a specific date shall be true and
correct on the Closing Date.
8.5 SOLVENCY. As of the execution and delivery of this Agreement, and, after
giving effect to the consummation of the transactions contemplated herein,
Buyers taken as a whole and individually will be solvent.
8.6 INTERPRETATION. For the purposes of this ARTICLE 8, New Frontier and
Colorado Satellite Broadcasting, Inc. are each considered to be a "Buyer".
ARTICLE 9. SELLER'S OBLIGATIONS BEFORE CLOSING
Seller covenants that, except as otherwise agreed in writing by Buyer, from the
date of this Agreement until the Closing:
9.1 BUYERS' ACCESS TO PREMISES AND INFORMATION. Buyers and its counsel,
accountants and other representatives shall be entitled to have full access
during normal business hours to all Seller's properties, books, accounts,
records, contracts and documents of or relating to the Subject Assets. Seller
shall furnish or cause to be furnished to Buyers and its representatives all
data and information concerning the Subject Assets and Adult Movies Business
that may reasonably be requested.
9.2 CONDUCT OF BUSINESS IN NORMAL COURSE. Seller shall carry on its business
and activities diligently and in substantially the same manner as they
previously have been carried on, and shall not make or institute any unusual or
novel methods of purchase, sale, lease, management, accounting or operation that
will vary materially from the methods used by Seller as of the date of this
Agreement if it would have a material adverse affect on its Adult Movies
Business.
9.3 PRESERVATION OF BUSINESS AND RELATIONSHIPS. Seller shall use its best
efforts, without making any commitments on behalf of Buyers, to preserve the
Seller's Adult Movies Business intact, to keep available to Seller, its present
officers and employees, and to preserve its present relationships with
suppliers, customers and others having business relationships with it.
9.4 MAINTENANCE OF INSURANCE. Seller shall continue to carry its existing
insurance, subject to variations in amounts required by the ordinary operations
of their businesses. At the request of
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Buyers and at Buyers' sole expense, the amount of insurance against fire and
other casualties which, at the date of this Agreement, Seller carry on any of
the Subject Assets or in respect of their operations shall be increased by
such amount or amounts as Buyers shall specify.
9.5 NEW TRANSACTIONS. Seller shall not do or agree to enter into any contract,
commitment or transaction which would materially adversely effect the ability of
Seller to perform any obligation set forth in this Agreement of any Collateral
Agreement.
9.6 EXISTING AGREEMENTS. Except in ordinary course of business, Seller shall
not modify, amend, cancel or terminate any of its existing contracts or
agreements, or agree to do any of those acts without the consent of Buyers, if
doing so would materially adversely affect its Adult Movies Business.
9.7 CONSENT OF OTHERS. As soon as reasonably practical after the execution and
delivery of this Agreement, and in any event on or before the Closing Date,
Seller shall obtain the written consent of the persons described in SCHEDULE
7.14 in form and substance satisfactory to Buyers and will furnish to Buyers
executed copies of those consents.
9.8 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. Seller shall use its
reasonable commercial efforts to assure that all representations and warranties
of Seller set forth in this Agreement and in any written statements delivered to
Buyers by Seller under this Agreement will also be true and correct as of the
Closing Date as if made on that date and that all conditions precedent to
Closing shall have been met. Seller shall promptly disclose to Buyers any
information contained in the Schedules to this Agreement which, because of an
event occurring after the date hereof, is incomplete or is no longer correct as
of all times after the date hereof until the Closing Date; provided, however,
that none of such disclosures shall be deemed to modify, amend or supplement the
representations and warranties of Seller or the schedules hereto for the
purposes of ARTICLE 11, unless Buyer shall have consented thereto in writing.
9.9 STATUTORY FILINGS. Seller shall cooperate fully with Buyers in preparing
and filing all information and documents required under any statutes or
governmental rules or regulations pertaining to the Transactions, including but
not limited to, any licenses required by Industry Canada and the rules
promulgated thereunder.
ARTICLE 10. BUYERS' OBLIGATIONS BEFORE CLOSING
10.1 GENERAL OBLIGATIONS AND CONFIDENTIALITY. Prior to the Closing Date (or, in
the event the Closing does not occur, for a period of two years following the
date of this Agreement) Buyers shall use its best efforts to preserve the
confidentiality of any commercial information which is confidential and which
Seller identifies in writing as confidential which is disclosed to Buyers or to
its representatives by Seller; provided that Buyers at all times shall not be
materially restricted in its investigation of the assets or matters relating
thereto. The above provisions of this Section shall not apply to any
information which (i) is already known to Buyers at the time of disclosure by
Seller, (ii) is published or through no fault of Buyers becomes published or
(iii) is lawfully
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disclosed to Buyer by a third party. Whether or not the Closing shall take
place, Seller waives any cause of action, right or claim arising out of the
access of Buyers or their representatives to any trade secrets or other
confidential business information of Seller from the date of this Agreement
until the Closing Date, except for the intentional competitive misuse by
Buyers or its representatives of such trade secrets or other confidential
business information (identified as confidential as required by this Article)
if the Closing does not take place.
10.2 SELLER'S ACCESS TO PREMISES AND INFORMATION. Seller and its counsel,
accountants and other representatives shall be entitled to have full access
during normal business hours to all Buyers' properties, books, accounts,
records, contracts and documents. The Buyers shall furnish or cause to be
furnished to Seller and its representatives all data and information concerning
Buyers that may reasonably be requested.
ARTICLE 11. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE
The obligation of Buyers to purchase the Subject Assets under this Agreement are
subject to the satisfaction, at or before the Closing, of all the conditions set
out below in this Article. Buyers may waive any or all of these conditions;
provided, however, that no such waiver of a condition shall constitute a waiver
by Buyers of any of its other rights or remedies, at law or in equity, if Seller
shall be in default of any of its representations, warranties or covenants under
this Agreement.
11.1 ACCURACY'S OF SELLER'S REPRESENTATIONS AND WARRANTIES. All representations
and warranties by Seller contained in this Agreement or in any Collateral
Agreement or in any written statement delivered by Seller thereunder shall be
true on and as of the Closing as though such representations and warranties were
made on and as of that date. Buyers shall have received a certificate, dated
the Closing Date, signed by Seller's President certifying, in such detail as
Buyers and their counsel may reasonably request, that the representations and
warranties set out herein are true and correct as of the Closing Date.
11.2 SELLER'S PERFORMANCE. Seller shall have performed, satisfied, and complied
with all covenants, agreements, and conditions required by this Agreement to be
performed or complied with by Seller on or before the Closing Date.
11.3 CERTIFICATION BY SELLER. Buyers shall have received a certificate, dated
the Closing Date, signed by Seller's President certifying, in such detail as
Buyer and its counsel may reasonably request, that the representations and
warranties set out herein are true and correct as of the Closing Date.
11.4 OPINION OF SELLER'S COUNSEL. Buyers shall have received from counsel for
Seller, an opinion dated the Closing Date, in form and substance reasonably
satisfactory to Buyers and their counsel, stating that:
(a) Seller is a corporations duly organized, validly existing and in good
standing under
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the applicable laws of the jurisdiction of its incorporation
and has all necessary corporate power to own its properties as now
owned and operate its businesses as now operated;
(b) all corporate proceedings required by law or by the provisions of
this Agreement to be taken by Seller on or before the Closing Date in
connection with the execution and delivery of this Agreement and the
consummation of the Transactions have been duly and validly taken;
(c) this Agreement has been duly and validly authorized and,
when executed and delivered by Seller will be valid and binding on
Seller and enforceable in accordance with its terms, except as
limited by bankruptcy and insolvency laws and by other laws
affecting the rights of creditors generally; and
(d) neither the execution nor delivery of this Agreement nor
the consummation of the Transactions will constitute a default, or
an event that would with notice or lapse of time or both constitute
a default under, or violation or breach of Seller's articles of
incorporation or bylaws.
In rendering their opinions, counsel for Seller may rely on certificates of
governmental authorities, certificates of Seller's officers, directors or
shareholders, and on opinions of associate counsel.
11.5 ABSENCE OF LITIGATION. No action, suit or proceeding before any court or
any governmental body or authority, pertaining to the Transactions or their
consummation shall have been instituted or threatened on or before the Closing
Date.
11.6 CORPORATE APPROVAL. The execution and delivery of this Agreement by
Seller, and the performance of their covenants and obligations under it, shall
have been duly authorized by all necessary corporate action, and Buyer shall
have received copies of all resolutions pertaining to that authorization,
certified by the secretary of Seller.
11.7 CONSENTS. All necessary agreements and consents of any parties (other than
Buyers, their shareholders or directors, and Authorities in the United States of
America) to the consummation of the Transaction, or otherwise pertaining to the
matters covered by this Agreement, shall have been obtained.
11.8 APPROVAL OF DOCUMENTATION. The form and substance of all certificates,
instruments, opinions and other documents delivered to Buyers under this
Agreement shall be satisfactory in all reasonable respects to Buyers and their
counsel.
11.9 CONSULTING AGREEMENT. Buyers and the Shareholders identified in SCHEDULE
11.9 shall enter into a consulting agreement substantially in the form of
SCHEDULE 11.9.
11.10 BULK SALES ACT. The Buyers will have been furnished with evidence
satisfactory that the sale and purchase of the Subject Assets is in compliance
with the provisions of the Bulk Sales Act
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(Ontario).
11.11 CONDITION OF ASSETS. The Subject Assets shall not have been materially or
adversely affected in any way as a result of any fire, accident, storm or other
casualty or labor or civil disturbance or act of God or the public enemy.
11.12 NON-COMPETITION AGREEMENT. The shareholders of Seller shall each have
duly executed and delivered to Buyers a Non-competition Agreement substantially
in the form of SCHEDULE 11.12.
11.13 RETAIL SALES TAX CERTIFICATE. Buyers shall have received, from Seller, a
retail sales tax certificate issued under the RETAIL SALES TAX ACT (Ontario).
11.14 AGREEMENT ON SCHEDULES. At the date of execution of this Agreement by the
parties, the form and content of the schedules to this Agreement had not be
settled by the parties and it is a condition precedent to Buyers' performance
under this Agreement that such schedules be settled prior to Closing.
ARTICLE 12. CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE
The obligations of Seller to sell and transfer the Subject Assets under this
Agreement are subject to the satisfaction, at or before the Closing, of all the
following conditions:
12.1 ACCURACY OF BUYERS' REPRESENTATIONS AND WARRANTIES. All representations
and warranties by Buyers contained in this Agreement or in any Collateral
Agreement or in any written statement delivered by Buyers thereunder shall be
true on and as of the Closing as though such representations and warranties were
made on and as of that date. Seller shall have received a certificate, dated
the Closing Date, signed by Buyers' Presidents certifying, in such detail as
Seller and its counsel may reasonably request, that the representations and
warranties set out herein are true and correct as of the Closing Date.
12.2 BUYERS' PERFORMANCE. Buyers shall have performed and complied with all
covenants and agreements, and satisfied all conditions that it is required by
this Agreement to perform, comply with, or satisfy, before or at the Closing.
12.3 OPINION OF BUYERS' COUNSEL. Buyers shall have furnished Seller with an
opinion from counsel for Buyers, dated the Closing Date, satisfactory to Seller
and its counsel, stating that:
(a) Buyers are corporations duly organized, validly existing and in good
standing under the laws of the State of Colorado and have all requisite
corporate power to perform their obligations under this Agreement;
(b) all corporate proceedings required by law or by the provisions of this
Agreement to be taken by Buyers on or before the Closing Date in
connection with
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the execution and delivery of this Agreement and the consummation of
the Transactions shall have been duly and validly taken;
(c) this Agreement has been duly and validly authorized and, when executed
and delivered by Buyers will be valid and binding on Buyers and
enforceable in accordance with its terms, except as limited by
bankruptcy and insolvency laws and by other laws affecting the rights
of creditors generally;
(d) neither the execution nor delivery of this Agreement nor the
consummation of the Transactions will constitute a default, or an event
that would with notice or lapse of time or both constitute a default
under, or violation or breach of Buyers' articles of incorporation
or bylaws; and
(e) to the best of such counsel's knowledge, there is no legal action
pending or threatened against either of Buyers which could have a
material adverse affect on Buyers.
In rendering its opinion, counsel for Buyers may rely on certificates of
governmental authorities and on opinions of associate counsel.
12.4 BUYERS' CORPORATE APPROVAL. Buyers shall have received corporate
authorization and approval for the execution and delivery of this Agreement and
all corporate action necessary or proper to fulfill the obligations of Buyers to
be performed under this Agreement on or before the Closing Date.
12.5 AGREEMENT ON SCHEDULES. At the date of execution of this Agreement by the
parties, the form and content of the schedules to this Agreement had not be
settled by the parties and it is a condition precedent to Seller's performance
under this Agreement that such schedules be settled prior to Closing and shall
be initialled by the signing officers of the parties.
12.6 CAPITALIZATION OF BUYERS. Prior to the Closing Date, the Buyers shall have
raised and received the net proceeds from a share offering of not less than
US$7,000,000.
ARTICLE 13. SELLER'S OBLIGATIONS AFTER THE CLOSING.
13.1 PRESERVATION OF GOODWILL. Following the Closing, Seller will restrict its
activities so that Buyers' reasonable expectations with respect to the goodwill,
business reputation, employee relations and prospects connected with the Subject
Assets will not be materially impaired. In furtherance but not in limitation of
this general obligation, Seller agrees that, for the period of two (2) years
following the Closing Date, or as long as Buyers or its assigns or successors in
interest carry on a like business in the counties or areas specified, whichever
is shorter:
(a) Seller and its shareholders will not engage in any business or
activity which is substantially the same as any business or activity
presently conducted by Seller if
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such business or activity extends to any of the geographic areas set
forth in SCHEDULE 11.12 in which Seller has heretofore engaged in
business or otherwise established its goodwill, business reputation,
or any customer relations. The parties intend that the covenant
contained herein shall be construed as a series of separate covenants,
one for each geographic area specified in SCHEDULE 11.12. Except for
geographic coverage, each separate covenant shall be deemed identical
in terms to the covenant set forth above. If, in any judicial
proceeding, a court shall refuse to enforce any of the separate
covenants deemed included in this Section, then this unenforceable
covenant shall be deemed eliminated from these provisions for the
purpose of those proceedings to the extent necessary to permit the
remaining separate covenants to be enforced.
(b) Seller and its shareholders will not disclose to any person or use for
their own benefit any price lists, pricing data, customer lists or
similar matters possessed by them relating to the Subject Assets or
the business transferred to Buyer unless they first clearly demonstrate
to Buyer that such matters are at the time of the proposed disclosure
or use of common knowledge within the trade.
13.2 SELLER'S INDEMNITIES. Seller shall indemnify, defend and hold harmless
Buyers against and in respect of any and all claims, demands, losses, costs,
expenses, obligations, liabilities, damages, recoveries and deficiencies,
including interest, penalties and reasonable attorneys' fees, that Buyers shall
incur or suffer, which arise, result from or relate to any breach of, or failure
by Seller to perform, any of its representations, warranties, covenants or
agreements in this Agreement or in any schedule, certificate, exhibit or other
instrument furnished or to be furnished by Seller under this Agreement.
Notwithstanding any other provision of this Agreement, Seller shall not be
liable to Buyer on any warranty, representation or covenant made by Seller in
this Agreement, or under any of its indemnities in this Agreement, regarding any
single claim, loss, expense, obligation or other liability that does not exceed
US$2,500.00; provided, however, that when the aggregate amount of all such
claims, losses, expenses, obligations and liabilities not exceeding US$2,500.00
each reaches US$25,000.00, Seller shall thereafter be liable in full for all
such breaches and indemnities and regarding all those claims, losses, expenses,
obligations, and liabilities.
13.3 ACCESS TO RECORDS. From and after the Closing, Seller shall allow Buyers,
and its counsel, accountants and other representatives, such access to records
which after the Closing are in the custody or control of Seller as Buyers
reasonably require in order to comply with its obligations under the law or
under contracts assumed by Buyers pursuant to this Agreement.
13.4 NONSOLICITATION OF EMPLOYEES. Except with the prior written consent of
Seller, Buyers shall not, prior to the first anniversary of the Closing, solicit
any employee of Seller or of any affiliate of Seller to leave such employment if
such employee was at any time between the date hereof and the Closing an
employee of any Seller.
13.5 RISK OF LOSS.
(a) Until the Closing Date the Subject Assets will remain at the risk of
Seller. Seller
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will maintain all risk insurance in respect of loss or damage to or
any other casualty in respect of the Subject Assets which provides
for loss settlement on a replacement cost basis if the Subject Assets
are repaired or replaced and on an actual cash value basis if the
Subject Assets are not repaired or replaced. In the event of any loss,
damage or claim, in respect of any risk for which insurance is to be
carried as aforesaid arising before the Closing Date, Buyers, as an
additional condition of closing, will be entitled to be satisfied that
the insurers have accepted the claim of Seller for payment in
accordance with the terms of the policies. If any destruction or
damage occurs to the Subject Assets on or before the Closing Date or
if any or all of the Subject Assets are appropriated, expropriated or
seized by governmental or other lawful authority on or before the
Closing Date, Seller will forthwith give notice thereof to Buyers and
Buyers will have the option, exercisable by notice to Seller on or
before the Closing Date:
(i) to reduce the Purchase Price by an amount equal to the cost of
repair or, if destroyed or damaged beyond repair or if
appropriated, expropriated or seized, by an amount equal to the
replacement cost of the assets forming the part of the Subject
Assets so damaged or destroyed or appropriated, expropriated or
seized and to complete the purchase;
(ii) to complete the purchase without reduction of the Purchase Price,
in which event all proceeds of insurance or compensation for the
destruction or damage or appropriation, expropriation or seizure
will be payable to Buyers and all right and claim of Seller to
any such amounts not paid by the Closing Date will be assigned
to Buyers; or
(iii) to rescind this Agreement and not complete the purchase if, in
the opinion of Buyers, such destruction, damage, appropriation,
expropriation or seizure is material and in such event Seller and
Buyers will be released from all obligations hereunder and the
deposit referred to in SECTION 2.1(a) shall be returned to
Buyers.
(b) If Buyers elect to reduce the Purchase Price pursuant to SECTION
13.5(a)(i), Seller and Buyers will at the Closing Date determine the
amount of the reduction to the extent that it is then determinable and
will undertake to adjust such amount after the Closing Date, if
necessary.
ARTICLE 14. COSTS
14.1 FINDER'S OR BROKER'S FEES. Each party shall be responsible for its on
costs or for any commission or finder's fee incurred on behalf of that party in
connection with the Transactions.
14.2 EXPENSES. Each of the parties shall pay all costs and expenses, including,
but not limited to attorneys' fees, incurred or to be incurred by it in
negotiating and preparing this Agreement and in
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closing and carrying the Transactions.
ARTICLE 15. FORM OF AGREEMENT
15.1 HEADINGS. The subject headings of the Articles and Sections of this
Agreement are included for purposes of convenience only and shall not affect the
construction or interpretation of any of its provisions.
15.2 ENTIRE AGREEMENT; MODIFICATION; WAIVER. This Agreement constitutes the
entire agreement between the parties pertaining to the subject matter contained
in it and supersedes all prior and contemporaneous agreements, representations,
and understandings of the parties. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by all the parties.
No waiver of any of the provisions of this Agreement shall be deemed, or shall
constitute, a waiver of any other provision, whether or not similar, nor shall
any waiver constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the party making the waiver.
15.3 COUNTERPARTS. This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
ARTICLE 16. PARTIES
16.1 PARTIES IN INTEREST. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and permitted assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third persons to any
party to this Agreement, nor shall any provision give any third persons any
right of subrogation or action over against any party to this Agreement.
16.2 ASSIGNMENT. No party can assign this Agreement without the express written
consent of the other parties. This Agreement shall be binding on and shall
inure to the benefit of the parties to it and their respective heirs or legal
representatives, and their respective successors and permitted assigns.
ARTICLE 17. REMEDIES
17.1 RECOVERY OF LITIGATION COSTS. If any legal action or any arbitration or
other proceeding is brought for the enforcement of this Agreement, or because of
an alleged dispute, breach, default or misrepresentation in connection with any
of the provisions of this Agreement, the successful or prevailing party or
parties shall be entitled to recover reasonable attorneys' fees and other costs
incurred in that action or proceeding, in addition to any other relief to which
it or they may be
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entitled.
17.2 CONDITIONS PERMITTING TERMINATION. Subject to the provisions of ARTICLE 3
relating to the postponement of the Closing Date, either party may on the
Closing Date terminate this Agreement by written notice to the other, without
liability to the other, if any bona fide action or proceeding shall be pending
against either party on the Closing Date that could result in a materially
adverse judgment, decree or order that would prevent or make unlawful the
carrying out of this Agreement.
17.3 DEFAULTS PERMITTING TERMINATION. If a Buyer or Seller materially defaults
in the due and timely performance of any of its material warranties, covenants,
or agreements under this Agreement, the 104/Merlin Agreement or the 5DBC
Agreement, the non-defaulting party or parties may on the Closing Date give
notice of termination of this Agreement, in the manner provided in ARTICLE 19.
The notice shall specify with particularity the default or defaults on which the
notice is based. The termination shall be on the first to occur of the 10th day
after such notice or the Closing Date, unless the specified default or defaults
have been cured by such time.
ARTICLE 18. NATURE AND SURVIVAL OF REPRESENTATIONS AND
WARRANTIES
All representations, warranties, covenants and agreements of the parties
contained in this Agreement, or in any instrument, certificate, opinion or other
writing provided for in it, shall survive the Closing.
ARTICLE 19. NOTICES
All notices, requests, demands and other communications under this Agreement
shall be in writing and shall be deemed to have been duly given on the date of
service if served personally on the party to whom notice is to be given, or on
the third day after mailing if mailed to the party to whom notice is to be
given, by first class mail registered or certified, postage prepaid, and
properly addressed as follows:
Seller: Douglas Duncan
2500 Don Reid Drive
Ontario, Canada
K1H 8P5
Stuart Duncan
2500 Don Reid Drive
Ontario, Canada
K1H 8P5
Daniel Bender
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27357 Valley Center Road
Valley Center, California
92082
with copy to: Jamie Wyllie, Esq.
Yegendorf, Brazeau, Seller, Prehogan & Wyllie
55 Metcalfe Street, Suite 750
Ontario, Canada
K1H 6L5
Buyers: New Frontier Media, Inc.
1050 Walnut Street, Suite 301
Boulder, CO 80302
Attn.: Mark H. Kreloff
with copy to: The Law Office of Mark L. Driver, P.C.
3300 East First Ave. Suite 600
Denver, CO 80206
Attn.: Mark L. Driver
Any party may change its address for purposes of this Article by giving the
other parties written notice of the new address in the manner set forth above.
ARTICLE 20. GOVERNING LAW
This Agreement shall be construed in accordance with, and governed by, the laws
of the State of Colorado.
ARTICLE 21. MISCELLANEOUS
21.1 ANNOUNCEMENTS. Seller will not make any announcements to the public
concerning this Agreement or the Transactions without the prior approval of
Buyers, which will not be unreasonably withheld. Notwithstanding any failure of
Buyers to approve it, Seller may make an announcement of substantially the same
information as therefore announced to the public by Buyers, or any announcement
required by applicable law, but Seller shall in either case notify Buyers of the
contents thereof reasonably promptly in advance of its issuance.
21.2 REFERENCES. Unless otherwise specified, references to Sections or Articles
are to sections or articles in this Agreement.
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21.3 RELATED TRANSACTIONS. It is a condition of the obligations of the parties
to close the Transactions that on the Closing Date the transactions referred to
in the 5DBC Agreement and the 124 Agreement also close on the Closing Date.
IN WlTNESS WHEREOF, the parties to this Agreement have duly executed it as of
the day and year first above written.
BUYERS: New Frontier Media, Inc.
By: /s/ Mark H. Kreloff
------------------------------------
Its: President
------------------------------------
Colorado Satellite Broadcasting, Inc.
By: /s/ (Illegible)
------------------------------------
Its: President
------------------------------------
SELLERS: 1043133 Ontario, Inc.
By: /s/ (Illegible)
------------------------------------
Its authorized signing officer
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